TSP to Limit "frequent trading" ...postal workers having major impact

Apparently, some savvy traders in the Thrift Savings Plan are having a major impact on cost of TSP trades. According to the data provided in a Federal Register Document found at tspshareholder.org, it gives the appearance that this day-trader technique was fairly profitable for the individuals. It appears it was a relatively small group of investors with large account balances that had this impact. An example taken from the document identifies the following data:
—;$295 million of those transactions
was attributable to 2,018 participants
who purchased on 10/19 and
redeemed on 10/24.
—323 of these participants transferred
$250,000 or more for a total of $110
million on each day.
—In the previous 60 days, these 323
participants had completed 5,804
exchanges of the I Fund for a total
dollar amount of $1.9 billion.


Mike Causey, over at Federal News Radio says, "The Federal Retirement Thrift Investment Board has contacted roughly 3,000 federal-postal workers who are considered "frequent traders" in his article subtitled, "TSP Trading Limits", which can be found in the article titled, "Reluctant Road Warriors."

The following explanation of the problem is an excerpt from the document found at: http://tspshareholder.org/docs/FRTIB.pdf. Please note this article is in Acrobat Reader PDF format. [Reference: http://tspshareholder.org]

The Problem
This situation began to change in
2006. As the number of interfund
transfers increased and as a small
number of participants with relatively
large account balances engaged in
frequent interfund transfers, a pattern
started to emerge. These participants
began to focus on the International
Index Investment (I) Fund, which tracks
the Morgan Stanley Europe, Australasia,
and Far East Index. The attraction may
have been based on the notion that by
the noon Eastern Time deadline for
submitting an IFT request, a participant
might anticipate whether overseas
markets would open up or down. Since
an IFT request is processed based on the
closing price for the previous day, this
was seen as an opportunity for arbitrage.
Although ‘‘fair valuation’’ was
introduced to eliminate the arbitrage
potential, some participants,
nevertheless, continued this behavior.
Moreover, over the past year, this
behavior has become more frequent and
less random.
This activity disrupts the Agency’s
carefully designed cost-minimization
efforts in three distinct ways: Increased
transaction costs (including
commissions paid to brokers, transfer
taxes, and market impact); increased
futures/cash position; and forgone
interest.
Market impact, which is impossible to
calculate in advance, is a major problem
generated by the correlated actions of
those individuals attempting to actively
manage their TSP investments based on
anticipated short-term market
movements.

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